Exhibit 10.4


 


THIS
NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE.  THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR DELIVERY TO MAKER
OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO MAKER THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT AND LAWS.


 


THIS
NOTE IS SUBJECT TO THE TERMS AND PROVISIONS OF A SUBORDINATION AGREEMENT OF
EVEN DATE HEREWITH AMONG THE PAYMENT AGENT, PAYEES, MAKER AND COMPASS BANK.


 


CONVERTIBLE SUBORDINATED NOTE


 


Houston, Texas


 


	
  $1,787,330.00

  	
   

  	
  June 16, 2004

  



 


FOR
VALUE RECEIVED, WHITTIER ENERGY COMPANY, a Nevada corporation (“Maker”),
promises to pay to the order of TEXAS INDEPENDENT EXPLORATION LIMITED, a Texas
limited partnership, in its capacity as payment agent for each of the Payees (“Payment
Agent”), at the address of Payment Agent specified in this note (or such
other place as the Payment Agent may hereafter designate in writing), in
immediately available funds and in lawful money of the United States of
America, the principal sum of One Million Seven Hundred Eighty Seven Thousand
Three Hundred and Thirty and No/100 Dollars ($1,787,330.00), together with
interest on the unpaid principal balance of this note from time to time
outstanding at the Stated Rate; provided,
that for the full term of this note the interest rate produced by the aggregate
of all sums paid or agreed to be paid on this note for the use, forbearance or
detention of the debt evidenced hereby shall not exceed the Ceiling Rate.


 


1.                                       Definitions.  As used in this note, the following terms
shall have the respective meanings indicated:


 


(a)                                  “Business Day” means any day except
(i) Saturday, (ii) Sunday or (iii) any day on which national banking
institutions in Texas do not transact business.


 


(b)                                 “Ceiling Rate” means, on any day, the
maximum nonusurious rate of interest permitted by applicable law, stated as a
rate per annum.


 


(c)                                  “Closing” shall have the meaning set
forth in Section 8 of the Letter Agreement.


 


(d)                                 “Common Stock” means the common stock,
par value $0.001 per share, of Parent.


 


(e)                                  “Conversion Price” means $2.00 per
share of Common Stock (subject to adjustment as provided herein).


 


(f)                                    “Current Market Price” means as of the
date of calculation, the last reported sale price per share of Common Stock on
the principal securities exchange or automated quotation


 

















 


system on which the Common Stock is then listed or admitted to trading
or quoted, or, in case no such sale takes place on such day, the closing price
on the first previous trading day on which a trade occurred as reported at
http://finance.yahoo.com. If shares of the Common Stock are not listed or
admitted to trading on any exchange or quoted or reported, the Current Market
Price shall be determined in good faith by the Company’s Board of Directors as
expressed by a resolution of such board as of a date which is within fifteen
(15) days of the date as of which the determination is to be made.


 


(g)                                 “Debt” means the indebtedness
(including any interest thereon) evidenced by this note.


 


(h)                                 “Letter
Agreement” means that certain letter agreement of even date herewith
between Maker and Payees.


 


(i)                                     “Maturity Date” means May 31, 2010,
the maturity date of this note as the same may hereafter be accelerated
pursuant to the provisions of this note.


 


(j)                                     “Parent” means Whittier Energy
Corporation, a Nevada corporation and owner of all of the issued and
outstanding capital stock of Maker.


 


(k)                                  “Payees” means, collectively, Texas
Independent Exploration Limited, a Texas limited partnership; Gulfcoast
Acquisitions Limited, a Texas limited partnership and successor by conversion
of Gulfcoast Acquisition Corporation; and Frederick W. Zimmerman d/b/a Island
Resources.


 


(l)                                     “Person” means any individual,
corporation, limited liability company, partnership, joint venture, trust,
unincorporated organization, or any government, governmental agency or
political subdivision thereof.


 


(m)                               “Stated Rate” means seven percent (7%) per annum.


 


2.                                       Computation
of Interest.  Interest on
the outstanding principal of this note shall be computed on a per annum basis
of a year of 360 days and for the actual number of days elapsed, unless such
calculation would result in a rate greater than the highest rate permitted by
applicable law, in which case interest shall be computed on a per annum basis
of a year of 365 days or 366 days in a leap year, as the case may be.


 


3.                                       Mandatory
Payments of Principal and Interest.


 


(a)                                  Accrued and unpaid interest on the unpaid
principal balance of this note shall be due and payable beginning on
August 31, 2004, and continuing regularly on each November 30,
February 28, May 31 thereafter until May 31, 2006, when the entire amount
of principal and interest then remaining unpaid, shall be amortized over a
48-month period and shall be due and payable in equal monthly payments, payable
on the last day of each and every calendar month, beginning June 30, 2006
and continuing regularly thereafter until the Maturity Date, when the entire
amount hereof principal and interest then remaining unpaid, shall be then due
and payable.


 


(b)                                 Subject to Section 7 below, to
the extent that the full principal amount of this note is not converted or
otherwise paid as set forth below, the remaining principal balance of this note
shall be paid in full on the Maturity Date.


 


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(c)                                  All payments hereon made pursuant to this Section 3
shall be applied first to accrued interest, the balance to principal.


 


(d)                                 If any payment provided for in this note
shall become due on a day other than a Business Day, such payment may be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of interest on this note.


 


4.                                       Subordination.


 


(a)                                  Notwithstanding anything to
the contrary under this note, the provisions of this note, including but not
limited to the payment provisions, are subject to and are subordinated as
provided in that certain Subordination Agreement (the “Subordination
Agreement”) of even date herewith among the Payment Agent, Payees, Maker and
Compass Bank and its successors, assignees or participants, and such
subordination provisions shall equally apply (without the necessity of further
action or consent by Payment Agent or any Payee), to any debt of Maker incurred
to replace, renew, repay or refinance Senior Debts (as defined in the
Subordination Agreement).


 


(b)                                 Maker will deliver a copy to
Payment Agent, within five (5) days after delivery to Compass Bank (or its
successors or assigns), of each (i) Compliance Certificate, as defined in that
certain Credit Agreement dated July 2, 2002, as amended (“Credit
Agreement”) and (ii) Statement of Material Adverse Change in Condition as
provided in Section 5.6 of the Credit Agreement.  In addition, Maker will deliver a copy to Payment Agent, within
five (5) days after receipt from Compass Bank, of each (i) consent of Compass
Bank consenting to Maker’s payment to Payment Agent of amounts owing under this
Note pursuant to the Subordination Agreement and (ii) any notice of default
under the Credit Agreement.


 


5.                                       Authority of Payment Agent.  Payment Agent shall have the full power and sole authority under
this note, on behalf of Payees to: collect and receive for distribution to
Payees all funds and Common Stock received, paid or issued on account of this
note; exercise, enforce, waive, amend, or modify any and all rights,
obligations or provisions of this note; execute and deliver on behalf of Payees
any and all instruments, notices or other documents incident thereto, including
without limitation, releases, termination statements, assignments and similar
documents; and, generally, take or cause to be taken all other actions
hereunder or with respect hereto as though Payment Agent were the sole Payee
hereunder.  Maker and Parent shall be
entitled to act in accordance with, and may rely exclusively, without inquiry
of any Payee, on any documents, instruments, notices and directions received
from the Payment Agent, and each Payee hereby releases Maker and Parent from
any liability, claim, damage or expense arising from or relating thereto.


 


6.                                       Conversion.


 


(a)                                  Right to Convert.  The Payment Agent, on behalf
of all Payees of this note, is entitled at any time before close of business on
the Business Day immediately preceding the date this note is repaid in full, to
convert the entire outstanding principal balance of this note or any portion of
the principal balance of this note then outstanding that is an integral
multiple of one quarter of the principal balance of this note, together with
all accrued but unpaid interest thereon, into fully paid and nonassessable
shares of Common Stock of the Parent at the Conversion Price by surrender of
this note, duly endorsed or assigned to Maker or in blank, and also delivery of
ten (10) days prior written notice of conversion to Maker at the principal
executive offices of Maker.


 


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In the event of conversion of this note in part,
a new note (with identical terms) for the unconverted portion hereof will be
issued in the name of the Payment Agent. The Maker shall thereafter deliver to
the Payment Agent the fixed number of shares of Common Stock into which this
note is convertible (together with cash in lieu of fractional shares of Common
Stock as provided herein), and such delivery will be deemed to satisfy Maker’s
obligation to repay the amounts so converted. 
In any conversion, the number of shares of Common Stock to be issued
upon such conversion shall be equal to the quotient obtained by dividing (i)
the aggregate amount of principal and interest to be converted by (ii) the
Conversion Price then in effect.  No
fractions of shares or scrip representing fractions of shares will be issued on
conversion, but instead of any fractional interest (calculated to the nearest
1/100th of a share) Maker shall pay cash in respect of such fraction
(calculated to the nearest 1/100th of a share) in an amount equal to the
Current Market Price per share on the day of conversion.


 


(b)                                 All shares of Common Stock that are issued
upon the conversion of this note shall be duly and validly issued, fully paid
and non-assessable.


 


(c)                                  Parent shall at all times reserve and keep
available, out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of all or a specified portion of the
outstanding principal amount of this note, such number of shares of Common
Stock as shall from time to time be sufficient to effect such conversion.


 


(d)                                 Payee shall not have the right to vote,
receive any dividend or other distribution with respect to or be considered the
record holder of, for purposes of any such vote or dividend or distribution,
any of the shares of Common Stock into which this note may be convertible prior
to such conversion.


 


(e)                                  The Conversion Price shall be subject to
adjustment from time to time as follows:


 


(1)                                  In case Parent shall pay or make a dividend
or other distribution on any Common Stock of Parent payable in shares of Common
Stock, the Conversion Price in effect at the opening of business on the day
following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be reduced by multiplying
such Conversion Price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the date
fixed for such determination and the denominator shall be the sum of such
number of shares and the total number of shares constituting such dividend or
other distribution, such reduction to become effective immediately after the
opening of business on the day following the date fixed for such
determination.  For the purposes of this
paragraph (1), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of Parent but shall include
shares issuable in respect of scrip certificates issued in lieu of fractions of
shares of Common Stock.


 


(2)                                  In case outstanding shares of Common Stock
shall be subdivided into a greater number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day following the day upon
which such subdivision becomes effective shall be proportionately reduced, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such increase
or reduction, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.


 


4

















 


(3)                                  In case Parent shall distribute to all
holders of shares of Common Stock (including any such distribution made in
connection with a merger or consolidation in which Parent is the resulting or
surviving Person and the Common Stock is not changed or exchanged) cash,
evidences of indebtedness of Parent or another issuer, securities of Parent or
another issuer or other assets (excluding cash dividends in which holders of
the note participate in the manner provided in Section 6(e)(4) and
dividends payable in shares of Common Stock for which adjustment is made under
another paragraph of this Section 6) or rights or warrants to subscribe
for or purchase of any of the foregoing, then, and in each such case, the
Conversion Price then in effect shall be adjusted (and any other appropriate
actions shall be taken by Parent) by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction (x) the
numerator of which shall be the Current Market Price of the Common Stock
immediately prior to the date of distribution less the then fair market value
(as determined in good faith by the Board of Directors) of the portion of the
cash, evidences of indebtedness, securities or other assets so distributed or
of such rights or warrants applicable to one share of Common Stock and (y) the denominator
of which shall be the Current Market Price of the Common Stock immediately
prior to the date of distribution (but such fraction shall not be greater than
one).  Such adjustment shall be made
whenever any such distribution is made and shall become effective retroactively
to a date immediately following the close of business on the record date for
the determination of stockholders entitled to receive such distribution.


 


(4)                                  If
the Parent declares and pays cash dividends on the Common Stock, then, in that
event, the holders of the note shall be entitled to share in such dividends on
a pro rata basis, as if the note had been converted into shares of Common Stock
immediately prior to the record date for determining the stockholders of the
Parent eligible to receive such dividends.


 


(f)                                    In case Parent (i) consolidates with or
mergers into any other corporation and is not the continuing or surviving
corporation of such consolidation of merger, or (ii) permits any other
corporation to consolidate with or merge into Parent and Parent is the
continuing or surviving corporation but, in connection with such consolidation
or merger, the Common Stock is changed into or exchanged for stock or other
securities of any other corporation, or (ii) effects a capital reorganization
or reclassification of the capital stock of Parent in such a way that holders
of Common Stock shall be entitled to receive stock, securities, cash and/or
assets with respect to or in exchange for Common Stock, then, and in each such
case, proper provision shall be made so that, upon the basis and upon the terms
and in the manner provided in this subsection, the Payment Agent, upon the
conversion of this note at any time after the consummation of such
consolidation, merger, reorganization or reclassification, shall be entitled to
receive (at the aggregate Conversion Price in effect for all shares of Common
Stock issuable upon such conversion immediately prior to such consummation as
adjusted to the time of such transaction), in lieu of shares of Common Stock
issuable upon such conversion prior to such consummation, the stock and other
securities to which such holder would have been entitled upon such consummation
if the Payment Agent had so converted this note immediately prior thereto.


 


7.                                       No Usury
Intended; Spreading. 
Notwithstanding any provision to the contrary contained in this note, it
is expressly provided that in no case or event shall the aggregate of (a) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof, and (b) the aggregate of any other amounts accrued or paid pursuant to
this note, which under applicable laws are or may be deemed to constitute
interest upon the indebtedness evidenced by this note from the date hereof,
ever exceed the Ceiling Rate.  In this
connection, Maker, Payment Agent and Payees stipulate and agree that it is
their common and overriding intent to contract in strict compliance with
applicable usury laws.  In furtherance
thereof, none of the terms of this note shall ever be construed to create a
contract to pay, as consideration


 


5

















 


for
the use, forbearance or detention of money, interest at a rate in excess of the
Ceiling Rate.  Maker or other parties
now or hereafter becoming liable for payment of the indebtedness evidenced by
this note shall never be liable for interest in excess of the Ceiling
Rate.  If, for any reason whatever, the
interest paid or received on this note during its full term produces a rate
which exceeds the Ceiling Rate, the holder of this note shall credit against
the principal of this note (or, if such indebtedness shall have been paid in
full, shall refund to the payor of such interest) such portion of said interest
as shall be necessary to cause the interest paid on this note to produce a rate
equal to the Ceiling Rate.  All sums
paid or agreed to be paid to the holder of this note for the use, forbearance
or detention of the indebtedness evidenced hereby shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread in
equal parts throughout the full term of this note, so that the interest rate is
uniform throughout the full term of this note. 
The provisions of this Section 7 shall control all
agreements, whether now or hereafter existing and whether written or oral,
between Maker, Payment Agent and/or Payees.


 


8.                                       Default.  The occurrence of any of the following
events shall constitute default under this note (an “Event of Default”),
whereupon Payment Agent may, at its option, but subject to the terms of the
Subordination Agreement, on behalf of Payees, exercise any or all rights,
powers and remedies expressly afforded under this note and by law, including
the right to declare the unpaid balance of principal and accrued interest on this
note at once mature and payable:


 


(a)                                  any part of the Debt is not paid when due,
whether by lapse of time or acceleration or otherwise, unless the default is
fully cured within ten (10) Business Days after Payment Agent has given Maker
written notice thereof;


 


(b)                                 Maker fails to perform, observe or comply
with—or defaults under—any of the terms, covenants, conditions or provisions
contained in this note unless the failure or default is fully cured within ten
(10) Business Days after Payment Agent has given Maker written notice thereof;


 


(c)                                  Maker: 
(i) voluntarily suspends transaction of business; (ii) becomes insolvent
or unable to pay its debts as they mature; (iii) commences a voluntary case in
bankruptcy or a voluntary petition seeking reorganization or to effect a plan
or other arrangement with creditors; (iv) makes an assignment for the benefit
of creditors; (v) applies for or consents to the appointment of any receiver or
trustee for any such party or for any substantial portion of its property; or
(vi) makes an assignment to an agent authorized to liquidate any substantial
part of its assets.


 


(d)                                 in respect of Maker:  (i) an involuntary case shall be commenced
with any court or other authority seeking liquidation, reorganization or a
creditor’s arrangement of any such party; (ii) an order of any court or other
authority shall be entered appointing any receiver or trustee for any such
party or for any portion of its property; or (iii) a writ or warrant of
attachment or any similar process shall be issued by any court or other
authority against any portion of the property of any such party and such
petition seeking liquidation, reorganization or a creditor’s arrangement or
such order appointing a receiver or trustee is not vacated or stayed, or such writ,
warrant of attachment or similar process is not vacated, released or bonded off
within sixty (60) days after its entry or levy.


 


(e)                                  Maker mergers, conveys, sells, transfers
leases or assigns all or substantially all of its assets without the prior written
consent of the Payment Agent, which shall not be unreasonably withheld.


 


6

















 


9.                                       No
Waiver by Payment Agent. 
Payment Agent’s right to accelerate this note for any late payment or
Maker’s failure to fulfill timely its other obligations hereunder shall not be
waived or deemed waived by Payment Agent by the acceptance of a late payment or
late payments in the past or Payment Agent otherwise not accelerating this note
or exercising other remedies for Maker’s failure to perform timely its
obligations hereunder.  Payment Agent
shall not be obligated or be deemed obligated to notify Maker that it is
requiring Maker to comply strictly with the terms and provisions of this note
before accelerating this note and exercising its other remedies hereunder
because of Maker’s failure to perform timely its obligations under this note.


 


10.                                 Costs
and Attorneys’ Fees.  If Payment
Agent retains an attorney in connection with any Event of Default or to
collect, enforce or defend this note in any lawsuit or in any probate,
reorganization, bankruptcy or other proceeding, or if Maker sues Payment Agent
or any holder in connection with this note and does not prevail, then Maker
agrees to pay to Payment Agent or such holder, in addition to principal and
interest, all reasonable costs and expenses incurred by such person in trying
to collect this note or in any such suit or proceeding, including reasonable
attorneys’ fees as determined by the court.


 


11.                                 Waivers
by Maker and Others.  Except to
the extent, if any, that notice of Event of Default is expressly required
herein, Maker waives notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting
and the filing of suit for the purpose of fixing liability and consents that
the time of payment hereof may be extended and re-extended from time to time
without notice.  Maker agrees that its
liability on or with respect to this note shall not be affected by any release
of or change in any guaranty or security at any time existing or by any failure
to perfect or to maintain perfection of any lien against or security interest
in any such security or the partial or complete unenforceability of any
guaranty or other surety obligation, in each case in whole or in part, with or
without notice and before or after maturity.


 


12.                                 Section Headings.  Section headings appearing in this note
are for convenient reference only and shall not be used to interpret or limit
the meaning of any provision of this note.


 


13.                                 Venue;
Choice of Law.  Maker,
Parent, Payment Agent and each Payee hereby irrevocably agree that any legal
proceeding in respect of this note shall be brought in the district courts of
Harris County, Texas, or in the United States District Court for the Southern
District of Texas, Houston Division (collectively, the “Specified Courts”).  Maker, Parent, Payment Agent and each Payee
hereby irrevocably submit to the exclusive jurisdiction of the state and
federal courts of the State of Texas. 
Maker, Parent, Payment Agent and each Payee hereby irrevocably waive, to
the fullest extent permitted by law, any objection which they may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this note brought in any Specified Court, and hereby
further irrevocably waive any claims that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.  THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND
THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.


 


14.                                 Transferability.  By accepting this note, Payment Agent and
each Payee agrees that its interest in this note (i) may be transferred to a
Person controlled by or under common control with the Payment Agent or such
Payee without consent of Compass Bank, Maker or Parent and (ii) may be sold
assigned or otherwise disposed of (each of (i) and (ii), a “Disposition”),
whether voluntary, involuntary or by operation of law, subject, however to
obtaining the prior written consent of Compass Bank, which consent shall not be
unreasonably withheld.  The foregoing
limitations on Dispositions will terminate upon the termination or expiration
of the Subordination Agreement.  Any
attempted Disposition of all or


 


7

















 


any portion of this note in violation of this Section 14
shall be, and is hereby declared, null and void ab initio.  Nothing herein shall prevent
a Payee from pledging such Payee’s interest in this note to secure the payment
of indebtedness.  However, the security
interest held by each pledgee of this note shall be owned by such pledgee
subject to the provisions of this note and such pledgee shall not sell, assign
or otherwise dispose of this note unless all provisions of this note have been
complied with in all respects, including, without limitation, the provisions of
Section 14 hereof.  Neither
this note nor Maker’s obligations hereunder may be assigned to any other person
or entity without the prior written consent of Payee, which consent shall not
be unreasonably withheld; provided,
that if Payment Agent has exercised its acceleration rights under Section 7(a)
of this note, then Maker shall not be permitted to assign this note.


 


15.                                 Successors
and Assigns.  This note
and all the covenants and agreements contained herein shall be binding upon,
and shall inure to the benefit of, the respective legal representatives, heirs,
successors and assigns of Maker, Payment Agent, each Payee and, for purposes of
Section 6 only, Parent.


 


16.                                 Severability.  If any provision of this note is held to be
illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of this note shall not
be affected thereby, and this note shall be liberally construed so as to carry
out the intent of the parties to it. 
Each waiver in this note is subject to the overriding and controlling
rule that it shall be effective only if and to the extent that (a) it is not
prohibited by applicable law and (b) applicable law neither provides for nor
allows any material sanctions to be imposed against Payment Agent or any Payee
for having bargained for and obtained it.


 


17.                                 Prepayment.  Maker may
at any time pay the full amount or any part of this note without the payment of
any premium or fee, provided that
Maker must provide written notice to Payment Agent at least thirty (30) days
prior to the date of such prepayment. 
All prepayments hereon shall be applied first to accrued interest and
the balance to principal. 


 


18.                                 Maker, Payment
Agent and each Payee expressly agree, pursuant to Section 346.004 of the
Texas Finance Code, that Chapter 346 shall not apply to this note or to any
advance evidenced by this note and that this note and all such advances shall
not be governed by or subject to the provisions of Chapter 346 in any manner
whatsoever.


 


19.                                 Notice.  All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given on the day when delivered personally or sent by
facsimile (with receipt confirmed), and two (2) Business Days after the date of
mailing when sent by reputable overnight delivery service (receipt requested),
in each case to the other parties at the following addresses and telecopier
numbers (or to such other address or telecopier number as shall be communicated
to the other parties by like notice): (i) if to Maker, to: Whittier Energy
Company or Whittier Energy Corporation, 333 Clay Street, Suite 1100, Houston,
Texas 77002, Facsimile: (713) 850-1879; and (ii) if to Payment Agent, to it at
the address set forth beside its signature on the signature page to this note.


 


20.                                 Entire
Agreement.  This note,
together with the Subordination Agreement, embodies the entire agreement and
understanding between Payment Agent, each Payee, Parent and Maker and other
parties with respect to the subject matter hereof and supersedes all prior
conflicting or inconsistent agreements, consents and understandings relating to
such subject matter.  Maker, Parent,
Payment Agent and each Payee acknowledge and agree that there is no oral
agreement between or among them that has not been incorporated in this note.


 


21.                                 Investment
Intent.  With respect to this note and
the Common Stock, each of the Payment Agent and each Payee hereby represents
and warrants to Parent that he, she or it:


 


8

















 


(a)                                  is an “accredited investor” as defined in
Rule 501 of Regulation D of the Securities Act of 1933, as amended (the “Securities
Act”);


 


(b)                                 is in a financial position to hold the Common
Stock for an indefinite period of time, is able to bear the economic risk of an
investment in the Common Stock and can withstand a complete loss of its
investment in the Common Stock;


 


(c)                                  is either alone or together with the
assistance of such person’s own professional advisor or advisors, has the
knowledge and experience in business and financial matters to read and
interpret financial statements of and concerning Parent and Maker and to
evaluate the merits and risk of an investment in this note and the Common
Stock;


 


(d)                                 has obtained, to the extent necessary,
professional advice with respect to the risks inherent in an investment in this
note and the Common Stock and the suitability of an investment in this note and
the Common Stock in light of such person’s financial condition and investment
needs;


 


(e)                                  understands that an investment in this note
and the Common Stock is highly speculative and nevertheless believes that an
investment in this note and the Common Stock is suitable based upon such
person’s investment objectives and financial needs; has adequate means for
providing for such person’s current financial needs and contingencies; and has
no need for liquidity of the investment represented by this note and the Common
Stock;


 


(f)                                    has either attended or been given reasonable
opportunity to attend meetings with representatives of Maker and Parent for the
purpose of asking questions of, and receiving answers from, these
representatives concerning Maker, Parent and an investment in this note and the
Common Stock, and for the purpose of obtaining any additional information to
the extent reasonably available that is necessary to verify the information
provided; acknowledges that as of the date hereof, it does not desire any
further information or data concerning Maker or Parent; acknowledges that Maker
has never made any guarantee or warranty (i) as to the approximate or exact
length of time that such person will, if it exercises its conversion rights
hereunder, be required to remain an owner of the Common Stock (or any other
securities of Maker or Parent), (ii) as to the type of consideration and/or
profit or loss, if any, that will result from an investment in the Common
Stock, or (iii) that any future expectations relating to Maker’s or Parent’s
performance indicate in any way what Maker’s or Parent’s financial condition or
results of operations will be in the future;


 


(g)                                 acknowledges that no person or entity other
than Maker and Parent has been authorized to give any information or to make
any representations on behalf of Maker or Parent in connection with this note,
and if given or made, such information or representations have not been relied
upon by such person as having been made or authorized by Maker or Parent;


 


(h)                                 acknowledges that it has been advised that:


 


THIS NOTE
HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE INVESTMENT INFORMATION PROVIDED HEREIN.  ANY


 


9

















 


REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE;


 


(i)                                     understands that (i) this note and the Common
Stock (A) have not been and will not be registered under the Securities Act or
any state securities laws, (B) will be issued in reliance upon an exemption
from the registration and prospectus delivery requirements of the Securities
Act, which relate to private offerings, (C) will be issued in reliance upon
exemptions from the registration and prospectus delivery requirements of state
securities laws which relate to private offerings and (D) may be required to be
held indefinitely without any ability to transfer the same, and (ii) therefore
the holder must bear the economic risk of such investment unless a subsequent
disposition thereof is registered under the Securities Act and applicable state
securities laws or is exempt therefrom; further understands that such
exemptions depend upon, among other things, the bona fide nature of the
investment intent of such person expressed herein;


 


(j)                                     the foregoing representations and warranties
and undertakings are made with the intent that they be relied upon by Maker and
Parent in determining its suitability as an investor and each such person
hereby agrees that such representations and warranties shall survive the
delivery of this note;


 


(k)                                  agrees and covenants that it will reaffirm
and renew all of the above representations and warranties in connection with
its exercise of its conversion rights under Section 6 of this note.


 


22.                                 Guaranty.  Payment and performance of the Debt evidenced by this note is
guaranteed by the Parent, as provided on the attachment hereto.


 


[Rest of Page
Intentionally Left Blank. Signature Pages to Follow.]


 


10

















 


IN WITNESS WHEREOF, the undersigned, by their respective
duly authorized and acting executive officers, have executed this Convertible
Subordinated Note as of the date first set forth above.


 


	
   

  	
  MAKER:

  
	
   

  	
   

  	
   

  
	
   

  	
  WHITTIER
  ENERGY CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Michael B. Young

  	
   

  
	
   

  	
  Name:

  	
  Michael
  B. Young

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PAYMENT AGENT:

  
	
   

  	
   

  	
   

  
	
   

  	
  TEXAS
  INDEPENDENT EXPLORATION

  LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Frederick W. Zimmerman

  	
   

  
	
   

  	
  Name:

  	
  Frederick
  W. Zimmerman

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PAYEES:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TEXAS
  INDEPENDENT EXPLORATION LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Frederick W. Zimmerman

  	
   

  
	
   

  	
  Name:

  	
  Frederick
  W. Zimmerman

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  GULFCOAST
  ACQUISITIONS LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Frederick W. Zimmerman

  	
   

  
	
   

  	
  Name:

  	
  Frederick
  W. Zimmerman

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  FREDERICK
  W. ZIMMERMAN,

  d/b/a ISLAND RESOURCES

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/
  Frederick W. Zimmerman

  	
   

  
	
   

  	
  Frederick
  W. Zimmerman

  
					



 


11

















 


GUARANTY


 


The
undersigned Whittier Energy Corporation agrees to the terms of the foregoing
Convertible Subordinated Note and guarantees Maker’s payment and performance
under the terms thereof.  Whittier
Energy Corporation agrees to perform its obligations under paragraph 6 of the
said note in the event conversion rights are exercised.


 


 


	
   

  	
  PARENT:

  
	
   

  	
   

  
	
   

  	
  WHITTIER
  ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Michael B. Young

  	
   

  
	
   

  	
  Name:

  	
  Michael
  B. Young

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  	
   

  
					



 


12